GDP Growth Revised Upward to 3% for Q2

NikolayFrolochkin  Pixabay

NikolayFrolochkin Pixabay

The Bureau of Economic Analysis said that the USA economy grew by an annualized 3.0 percent in the second quarter, revised up from an earlier estimate of 2.6 percent.

On the stump for an overhaul of the nation's tax system, President Donald Trump on Wednesday said that cutting taxes would "bring back Main Street" and spur the USA economy to a level of growth not seen since the Great Recession. Real GDP increased at an annualized rate of 3.0% in the second quarter of 2017. The growth rate in the January-March quarter was a lacklustre 1.2%.

Trump frequently touts good economic news and accuses the media of failing to cover it.

This came in much higher than the 185,000 forecast by analysts, and upped the ante on expectations for Friday's report, where forecasts now sit at 180,000 - which is close to the average monthly increase this year.

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Hurricane Harvey's pummeling of major population and production centers in Texas and Louisiana will likely constrain growth in the third quarter. Both consumer spending and business investment are likely to sustain weaker performance as a result, but most of the drag is likely to come from net exports - with refined product exports hard hit given the outages of Gulf Coast refineries and ports shuttered.

"The ADP overshoot in August compared to our payroll model suggests we should move our forecast for Friday up to about 220K from 200K", said Ian Shepherdson, Chief economist at Pantheon Macroeconomics.

The dollar firmed against a basket of currencies, while prices for U.S. Treasuries fell.

The Trump administration is targeting tax cuts, deregulation and infrastructure spending to boost growth. This raises doubts on the sustainability of the robust pace of consumer spending.

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"Underlying domestic demand in the economy is consistent with near three percent growth but the supply-side of the economy is not capable of delivering such a pace of growth at this point", John Ryding, chief economist at RDQ Economics in NY, told CNBC.

Past year the economy grew a meagre 1.5%, the poorest showing since 2009 when GDP shrank by 2.9%.

Growth in the U.S. expanded in the second quarter at a greater pace than previously estimated, as personal consumption and non-residential investment increased by more than forecast in the flash estimate.

The acceleration in GDP increases chances that the Federal Reserve would announce the process of reducing its $4.5 trillion balance sheet at its forthcoming meeting in September. Still, the subdued inflation figures continue to be a constraint at this point.

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Consumer spending, biggest part of the economy, grew 3.3 percent (estimated 3 percent), most since second quarter of 2016 and revised from 2.8 percent.

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